A step in the wrong direction

July 10, 2009 3:12 AM

A proposed new Venezuelan law imposing further government supervision of arbitration would be a significant step away from international best practice, argues Hernando Díaz-Candia of Squire Sanders & Dempsey SC in Caracas.

The Venezuelan government recently made public its intention to potentially place the functioning of arbitration under executive government supervision. On 7 April, the Venezuelan National Assembly passed the Organic Law of the Justice System, which reportedly was received for signature by the president of the Bolivarian Republic of Venezuela, Hugo Chávez, the next day. By 16 May the law had not been published in the Official Gazette. Presumably it caused internal controversy in government legal circles, being possibly perceived as unconstitutional because it eroded the separation of powers. There have been unconfirmed reports that the president may have informally called on the National Assembly to reconsider the text. Those who practise arbitration, by and large, perceive the delay in publication of the law as welcome news. Whether or not the law is ultimately signed by the president and published as currently drafted, the fact that it was passed by the National Assembly reflects, among other things, a resistance and resentment against arbitration by some parts of the Venezuelan government and a potential threat against the proper autonomous functioning of arbitration. As passed by the National Assembly, the law reforming the justice system states that a National Commission – comprising government representatives ranging from the president of the Supreme Tribunal of Justice to the attorney general – would have jurisdiction to “register, supervise and coordinate the functioning of services in alternative dispute resolution mechanisms”, including arbitration. It could be argued that such a provision granting jurisdiction to a commission would only be unconstitutional as applied, as opposed to facially or per se, depending on how the commission actually exercises its powers. But I believe that even the simple requirements for registration, supervision and coordination with a government commission would defeat the purpose of having alternative dispute resolution mechanisms recognised by article 258 of the Venezuelan constitution, which imposed upon legislators an affirmative duty to “promote alternative dispute resolution mechanisms”. Article 258 is the equivalent to a constitutional regulation of what is known as the pro arbitri principle in the continental European legal system, or what the Anglo-American legal system calls a liberal arbitration policy. It is true that arbitration is not ideal for all cases nor all parties and that, in some sectors, arbitration may have degenerated into a lucrative business for a selected few. Some may reasonably argue that arbitration has always offered, but rarely delivered, a more cost efficient dispute resolution mechanism than the judiciary. The Venezuelan judiciary partially resents arbitration, or at least has not offered full practical application of kompetenz-kompetenz in disputes involving government entities; the judiciary may believe that substantive local laws are not being properly applied by arbitrators and consequently conclude that government entities cannot be treated fairly in arbitration. That may well justify legally excluding arbitration, by way of targeted statutes, in some industry sectors or excluding the arbitrability of certain subject matters generally. But the perceived problem should not be resolved by imposing a general supervisory power over arbitration by a government commission. After all, in Venezuela arbitration does not represent a restraint upon access to the administration of justice, but rather a laudable and constitutionally protected method of the administration of justice through an equal alternative to the government-administered judiciary, one from which the parties may decide to withdraw voluntarily. The 1999 constitution of Venezuela conceived a legal system formed by two components: judicial justice and arbitral justice. Each has advantages and disadvantages. In most cases, it must be up to the parties to freely choose between the two, without direct or indirect government supervision. The institution of arbitration included in, or protected by, article 258 of the Venezuelan constitution has been universally recognised as being based or grounded upon the autonomy of the will of the parties, that is, the parties’ validly and freely manifested consent. Arbitration is premised on a fundamentally consensual basis. So much so that the parties are generally free to chose between institutional or administered arbitration and ad hoc or purely free arbitration as dispute resolution mechanism. Institutional arbitration, in Venezuela and around the world, provides reasonable comfort to the parties by allowing access to pre-set rules, boards and a permanent secretarial body. Many institutions have been in existence for a considerable amount of time and have a commitment to the supervision of arbitration proceedings, but ad hoc or free arbitration is still constitutionally permissible in general. Arbitration must also be generally flexible, albeit not necessarily informal, and true arbitral autonomy is essential to that effect. Even if one believes that the adjudication of conflicts of private interests are among the key functions of a government, and that judicial processes offer a means by which some disputes in society are settled according to the rule of law and legal authority, rather than by political struggle, there is no plausible reason to exclude arbitration from that process, nor to interfere with the free functioning of arbitration by placing external executive controls upon it. It is always a legitimate debate whether or not an arbitration law facilitates the progress of arbitration or interferes with it. How the judiciary deals with the supervision of arbitration can often determine whether a country is considered to be a suitable forum for international dispute resolution. Even in countries where arbitration is well developed, like the United States, it has been held that a court may vacate an arbitration award where an arbitrator acts in “manifest disregard of the law” if the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and the law ignored by the arbitrators was well defined, explicit and clearly applicable to the case. But placing arbitration under the supervision, coordination or organisation of a governmental commission, beyond the review of arbitral awards by the judiciary, would frustrate the purpose of having flexibility in procedures and of autonomy of will playing a predominant role in dispute resolution. The fact that the Venezuelan government has considered that possibility reflects that arbitration lawyers and their clients must help by constructively re-educating opponents about the benefits of arbitration but also about existing and emergent global arbitration best practices. (Source: Magazine Latin Lawyer) June 24, 2009